Several companies send a variety of economic research data. I appreciate a broad view of what’s happening in the world even though we are in a period where many think nations can survive alone (note: check your history; hard to find a time that didn’t exist without international trade).
The Bloomberg New Economy Forum launched a first-of-its-kind index, covering 114 economies accounting for 98% of global GDP. The New Economy Drivers and Disrupters Report introduces a new benchmark that for the first time measures competitiveness against the new disruptive forces sweeping the global economy: automation, digitization, climate change, protectionism, and populism.
“In the New Economy, traditional ways of measuring competitiveness no longer tell the whole story. From protectionism to climate change, new disruptive forces are upending assumptions about how economies grow, and reshuffling the pattern of winners and losers. This report brings transparency to the obstacles economies face, showing who is positioned for success, and who is not,” said Tom Orlik, Chief Economist, Bloomberg Economics.
Bloomberg defines the New Economy as the shift in global economic power, from the traditional seats of power in Europe and North America to emerging economies spanning Asia, Africa, the Middle East and Latin America. The New Economy Drivers and Disrupters Report highlights the complex challenges that come with this shift in power, and concludes that the new economies are poorly positioned for the new disruptive forces. The ‘catch up’ process – which has defined the global economy for the last 50 years, with low-income economies narrowing the gap with high-income – isn’t over. It will become more complicated.
Key findings from the report include:
● The next stage of China’s development will be harder than the last: On the traditional drivers of development, China outperforms most economies. With rapid modernization of infrastructure, advances in education, and investment in research and development, it’s the fourth ranked overall and the highest ranked emerging market. On the disruptive forces reshaping the world economy, from protectionism to climate change, it’s much less well positioned, ranking 50th.
● In terms of economic opportunity, India today looks similar to China at the beginning of its boom: Favorable demographics and a far reaching reform agenda have the potential to super-charge growth. However, there is a barrier to rapid development – the country is even more exposed to disruptive forces than China, as it is ranked 80th. In an age of disruption, late developers will have a more difficult time in catching up.
● Vietnam and Asia’s fourth wave: In Asia, exporting has been the path to prosperity. First Japan, then Korea, then China grew by leveraging their low labor costs to claim global market share. Vietnam has the potential to be part of the fourth wave of development. With a global tilt toward protectionism, however, the export path to prosperity is becoming more difficult to follow. Vietnam ranks 73rd on disrupters.
● Loose BRICS: For more than a decade, the BRICS (Brazil, Russia, India, China and South Africa) have embodied hopes for emerging market economies. Bloomberg’s Index shows that, with the exception of China, they have yet to deliver on their potential. With work still left to do on optimizing traditional drivers of development, the BRICS will have additional difficulty managing the coming disruptive forces of the new economy.
● Disrupting the Advanced Economies: For major advanced economies, the right policy response to disruptive forces will make the difference between extending prosperity and slumping growth. In the U.K., breaking ties with the world’s biggest trade zone could cost 7% of GDP over the next ten years. In the U.S., an immigrant-enhanced workforce and trade-boosted gains in productivity could support annual GDP growth at 2.7% in the next decade. Without them, growth could slump to 1.4%. Germany and Singapore showcase the capacity of high-income countries to manage disruptive forces. Singapore tops our rankings on the digital economy. Germany’s strong institutions and highly educated workforce provide a bulwark against risk.
About New Economy Drivers and Disruptors Report
The New Economy Drivers and Disrupters Report evaluates 114 economies on two sets of metrics. One captures the traditional drivers of development, while the other captures exposure to the disruptive forces creating new risks and opportunities in the new economy. The drivers consist of a composite gauge of productivity, projected growth in the labor force, the scale and quality of investment, and a measure of distance from the development frontier. The disrupters gauge economies’ positions in relation to populism, protectionism, automation, digitization and climate change.
The indices were developed by Tom Orlik, Scott Johnson, and Alex Tanzi of Bloomberg Economics, drawing on data from official, academic, and market sources. Michael Spence, Nobel laureate in economics, advised on the report.
The report includes a series of interactive data visualization graphics that show how economies are positioned relative to their peers, along with the rankings based on the drivers and disrupter metrics. Case studies include:
· “A Rare Trade-War Winner, Vietnam Struggles to Keep its Gains”
· “Chinese Micro Loans Open Window for Small Firms – And More Debt”
· “Climate Change Leaves Zambia Struggling to Keep the Lights On”
· “Poland’s Struggle to Find Workers Leaves Businesses in a Bind”
A series of subsequent case studies will launch weekly leading up to the New Economy Forum.
The New Economy Drivers and Disrupters Report is a proprietary report created by Bloomberg Economics for the New Economy Forum. The forum, co-hosted by Bloomberg and the China Center for International Economic Exchanges is being held in Beijing on November 20-22, 2019, bringing together the world’s most influential business leaders and government officials from more than 60 countries to drive public-private partnerships and action. New economy leaders will convene in China to address the forces of disruption challenging the new economy and catalyze solutions that impact change.
I have received news of PwC’s Industrial Manufacturing Deals Outlook. I guess you have your good news and your bad news.
From the report’s summary: While disruptive factors are prevailing and point to an economic downturn, many of the positive factors we have highlighted in our previous publications are still relevant in Q3 2019. As stated in PwC’s publication “Winning through M&A in the next recession,” the M&A environment is cyclical and has historically followed economic downturns, as capital available for deals typically decreases; however, the next recession will be different. We believe the downturn will be unlike historical downturns as disruptive economic factors are partially offset by a few positive factors, leading buyers to continue to pursue M&A activity.
Positive factors impacting the deal-making landscape in 2019:
- Record levels of dry powder from private equity funds and healthy corporate balance sheets coupled with the repatriation of cash for US-based multinationals indicate sufficient levels of capital to pursue acquisitions, which will prevent deal activity from dropping too low.
- High valuations have been a factor for the decline in deal volume from YTD 2018 to YTD 2019. However, as the economic outlook declines, valuations will likely fall, which will provide opportunities for buyers with high levels of capital. If buyers are aggressive during the downturn, M&A demand should be higher than historical downturns.
- The prominence of megadeals is reflecting a decoupling of the megadeals segment of the M&A market from the lower-growth global economic environment.
Disruptive factors likely to create a pause in deal making in 2019:
- The Chinese and US economies are pointing to economic slowdowns. Chinese GDP growth in 2019 is expected to be between 6.2%–6.4%, a decrease from approx. 6.7%–6.8% in 2018. The US GDP annualized growth in 2019 is expected to be between 1.8%–2.3%, a decrease from approx. 3%–3.5% in 2018.
- Uncertainties as it relates to length of economic slowdowns around the globe, Brexit, and the continued struggles to negotiate trade agreements and tariff concessions between the US and China, remain on the minds of deal makers.
- The PMI index has dropped to 47.8 at the end of Q3 2019, which is the lowest it has been since 2009.
PwC also captured some quick highlights below:
- Scale Transactions will Continue to be the Focus for the Industrial Manufacturing Sector
- Macroeconomic factors – the trade war, slow GDP growth and high valuations – continue to affect the M&A environment across the industrial manufacturing industry. The latest September numbers from the Institute for Supply Management also showcase the struggle the sector is experiencing with the U.S. manufacturing purchasing managers’ index coming in at 47.8%, marking the second consecutive month of contraction and was the lowest reading in more than 10 years.
- So far in 2019, M&A activity in the industrial manufacturing industry has been driven by scale transactions, which is primarily focused on product, customer and geographic expansion. We believe this trend will continue into next quarter and 2020. Here’s a breakdown of Q3 2019 M&A analysis of the industrial manufacturing sector:
- Total deal value declined by 32% to $18.1 billion when compared to Q2 2019. For YTD 2019, the deal value also declined by 16% to $64.5 billion vis-à-vis YTD 2018.
- Deal volume in Q3 2019 and YTD 2019 declined by 10% and 11% over Q2 2019 and YTD 2018, respectively.
- There was no megadeal in Q3 2019.
- All the categories within the sector saw a decline in deal value during the third quarter except the Electronic and Electrical Equipment and Rubber and Plastic Products. However, the Industrial Machinery drove M&A activity with 40% and 35% in value and volume respectively.
- North America’s deal value significantly declined by 55% in the third quarter compared to the previous quarter, but the region was the most active acquirer with 36% of deal volume, followed by Asia and Oceania.
- Although there are factors that point to an economic downturn in the near future, we believe the next recession will be different as it pertains to the M&A environment and could potentially lead buyers to continue to pursue deals.
Worldwide cross-sector deal value decreased 13% from YTD 2018 to YTD 2019, while deal volume remained flat at a 1% increase during the same period. Consistent with cross-sector worldwide, Industrial Manufacturing value has decreased 16% from YTD 2018 to YTD 2019. The primary driver of value decline is related to the 11% decrease in deal volume during this period, which is reflective of some of the lowest quarterly activity since Q1 2014.
Consistent with the trend noted in our Q2 2019 publication, year-to-date activity has been driven by scale transactions, which are primarily focused on product, customer, and geographic expansion. The decrease in deal volume is a result of macroeconomic factors such as the lingering trade war, anemic GDP growth around the world, and high valuations. While overall deal value has seen a decline, the aggregate value of the top ten deals year-to-date has remained stable at $30.3 billion YTD 2018 and $31.4 billion YTD 2019. As such, these macroeconomic factors have not deterred deal makers from turning to M&A to meet their strategic objectives.
Trends and highlights
- In Q3 2019, the total deal value declined by 32% to $18.1 billion when compared to Q2 2019. For YTD 2019, the deal value also declined by 16% to $64.5 billion vis-à-vis YTD 2018.
- Similar trend can be seen in terms of total deal volume. Deal volume in Q3 2019 and YTD 2019 declined by 10% and 11% over Q2 2019 and YTD 2018, respectively.
- Average deal size declined by 15% to $83.6 million in Q3 2019 compared to Q2 2019. The average deal size also declined by a mere 2% to $93.7 million in YTD 2019 vs. YTD 2018.
- Out of the top ten deals in YTD 2019, four deals took place in Q3 2019. These four totaled up to ~$9.3 billion, and accounted for more than 50% of the total deal value for the quarter.
I’ve followed Foxboro and Triconex for many years now in my coverage of the process automation business. A great company that, not unlike too many others, suffered now and again with very poor management. The company has now settled in nicely at its home in Schneider Electric and appears to be healthy here.
Much credit must go to Gary Freburger. He provided a steadying hand as the leader before and through the transition, as well as guiding the integration into the new home. He is retiring at the end of the year. I’ve met a number of great leaders and a few stinkers in my 20 years at this side of the business. Gary’s one of the great ones. And his chosen successor (see more below) seems more than up for the task of building on his successes.
Marcotte Succeeds Freburger as Process Automation President
This week’s major announcement revealed that Nathalie Marcotte has been selected to succeed Freburger as president of its Process Automation business, effective Jan. 1, 2020.
“After a long, successful industry career, including more than 15 years serving Invensys and Schneider Electric in various senior leadership roles, Gary has decided to retire,” said Peter Herweck, executive vice president, Industrial Automation business, Schneider Electric. “We thank him for his many contributions and his strong legacy of success. We wish him well, and I congratulate Nathalie on her appointment. She brings more than 30 years of industry knowledge, expertise and experience, as well as a long record of success. I look forward to working with her as we build on the success Gary has delivered.”
Since joining the Schneider organization in 1996, Marcotte has held several positions of increasing responsibility, including vice president of Global Performance and Consulting Services; vice president, North America marketing; general manager for the Canadian business; and, prior to her current position, vice president, marketing, Global Systems business. As the company’s current senior vice president, Industrial Automation Services, she is responsible for Schneider Electric’s Services business and offer development, ranging from product support to advanced operations and digital services. She is also responsible for the company’s Global Cybersecurity Services & Solutions business, including the Product Security Office.
“As we move through this transition, it will be business as usual for Schneider Electric and our Process Automation customers,” Marcotte said. “Gary and I are working very closely together to ensure there will be no disruptions to our day-to-day operations. This ensures our customers have the same access to the exceptional people, products and technology they have come to trust and rely on to improve the real-time safety, reliability, efficiency and profitability of their operations.”
“I thank Gary for his many contributions to Schneider Electric and to our industry in general. Under his leadership, our customers, partners and employees have never been better situated to succeed, today and tomorrow,” Marcotte said. “This transition will have no impact on our technology strategy and portfolio roadmap. We remain committed to our continuously-current philosophy, which means never leaving our customers behind. Now, by leveraging the strength of the full Schneider Electric offer, we can take the next step toward enabling an easier, less costly digital transformation for our customers, while keeping them on the path to a safer, more secure and profitable future.”
Following the opening keynotes, I had the opportunity to chat privately with Freburger and Marcotte. Following summarizes a few key takeaways.
Digitalization and Digital Transformation.
These topics were prominently displayed in the ballroom before the keynotes. In fact the welcome and opening presentation were given by Mike Martinez, Director of Digital Transformation Consulting. These are common themes in the industry—in fact, not only process automation, but also at the IT conferences I cover. Each company has its own unique take on the terms, but it still boils down to data, data integrity, databases, and data security. All of which were discussed.
Key Points From the Presidents.
Integration across Schneider Electric. One priority has been working with other business units (and their technologies) across the Schneider Electric portfolio. This could be PLCs and drives, but power is a huge emphasis. Schneider Electric management wants very much for its process automation acquisition to integrate well with its historic electric power business. This is seen as a strategic opportunity. One thought-provoking observation—is the process engineer/electrical engineer divide as serious as the IT/OT divide? No direct answer. But these domains have historically had little to no collaboration. One to watch.
Close working relationship with AVEVA. If you recall, Schneider Electric bundled its various software acquisitions including the ones from Invensys (Wonderware, Avantis) and used them to buy into AVEVA—the engineering software company. Bringing automation and software together was a constant source of pain for Invensys. Schneider Electric dealt with it through a separate company. Along the way, cooperation seems to be better than ever. Marcotte explained to me that Foxboro combines its domain expertise with the more broadly general software platforms to achieve customer values. See for example my previous post on Plant Performance Advisors Suite.
Cybersecurity. Marcotte has been leading Schneider’s cybersecurity efforts. These are seen as a key part of Schneider Electric’s offer. See especially the establishment of the ISA Global Cybersecurity Alliance. They don’t talk as much about Internet of Things as at other conferences, when I probed more deeply about IT, cybersecurity was again brought up as the key IT/OT collaboration driver.
It’s been a struggle, but the Schneider Electric process automation business (Foxboro and Triconex) seems as strong as ever. And the people here—both internal and customers—are optimistic and energetic. That’s good to see.
This is a post about education, personal development, and why you should be a generalist.
Tiger Woods was trained almost from the cradle for one thing–to be the greatest golfer.
Roger Federer tried many sports. He loved soccer. Even though his mother was a tennis teacher, he didn’t pick up tennis until his early teens. Other kids had been playing for years by then. He soon passed them by and into his thirties is a dominant tennis star.
You need to be good at something, but it is good to be interested and experienced in many things.
I have a book to recommend. Range: Why Generalists Triumph in a Specialized World, by David Epstein. This book will help you learn to live a fuller life–and help you bring up your kids and encourage your grandkids.
Life in the industrial age, as well as in some previous eras, was composed of patterns. You could be trained to recognize patterns and adapt and become skilled at them. These are called “kind” learning environments. Kids excel who see and repeat the patterns.
Life today is what a psychologist call a “wicked” learning environment. Here, the rules of the game are often unclear or incomplete, there may or may not be repetitive patterns, and they may not be obvious, and feedback is often delayed, inaccurate or both. In most devilishly wicked learning environments, experience will reinforce the exact wrong lessons.
So, let’s look at responding to today’s “wicked” learning environment. “The bigger the picture, the more unique the potential human contribution. Our greatest strength is the exact opposite of narrow specialization. It is the ability to integrate broadly.” This all sounds great. But what about what I read in the news as the “typical Trump voter” who is a worker trained in the old way watching his job being replaced. And who is the leader who is poised to take them to this next level? Well, no one. Just leaders who play to their fears.
There are some courageous leaders changing the system for educating young people so that they can thrive in this new environment. We just have to have more of that. More people guiding young people—and older people, as well—need to take into practice this advice from psychologist and creativity researcher Dean Keith Simoton, “Rather than obsessively focusing on a narrow topic, creative achievers tend to have broad interests.” Modern work demands knowledge transfer—the ability to apply knowledge to new situations and different demands. In my life I have worked with both highly educated engineers AND high-school-educated technicians who exhibit this. More must be encouraged.
For those who, like me, studied broadly as an undergraduate and didn’t care much about grades, take this observation from professor and researcher James Flynn who was “bemused to find that the correlation between the test of broad conceptual thinking and GPA was about zero. Flynn, “The traits that earn good grades at [the university] do not include critical ability of any broad significance.
Here is a tip for those who teach at any level. When asking a student a question, force them to answer, even if it is wrong. Then just force them to answer again. And again. Until they get it right. Giving them hints to guide a correct answer quickly provided fewer long-term results than the first method. “Repetition is less important than struggle.”
Oh, and in a test of forecasting, experts were far worse than “amateurs” getting it right!
How does one adapt? By reading widely. Pursue several interests. That will be the human triumph in an age of robots.
I have just returned from a weekend in Eastern Ohio at a youth soccer tournament. You learn a lot about human nature–your own as well as others–when you’re in a competitive tightly compressed space.
The games I refereed had coaches and parents carrying exhuberance carried way too far–probably into less positive descriptions. As director of referees for the tournament, I walked around observing other games, as well. Talked with a 15-year-old girl about her game. She told me the parents were the worst. They yelled unkind things directly at their goalkeeper including calling her a “bitch”. Sometimes I wonder.
This week I’m heading west for another IT conference. This one is Hitachi Vantara. I have had a few interviews lately with people from there as they have ramped up an Industrial IoT practice. I’m sure there will be more later this week.
What started me thinking about human nature and Industrial IoT suppliers was a comment I received a couple of weeks ago at another conference. “The trouble with the IT companies is that their sales people come in and promise that their Industrial IoT solution will solve all their problems.”
What engineer do you know who would believe that? Which ones would immediately tune them out and start thinking about their hobby?
I was a sales guy once. Or twice. I also was the guy from engineering who tried to explain the technology, benefits, and competitive advantage of our product versus the market. I also watched for when the sales peoples’ eyes glazed over. They didn’t want too much information. Too much gets in the way of a sales pitch. It’s partly just human nature and partly knowing their job.
That was a good comment. I don’t work with sales at these companies. Sure, the CEO is “selling” when they talk to me, but it’s a different selling. I write; I don’t buy.
It taught me to probe a little deeper into all these companies I cover–IT and OT–and get into what message they take to the prospect or customer. It may be entirely different from what I hear. And that would be a valuable part of the story.
I interrupt my writing from last week’s event to bring some interesting news. The last time I was able to meet with a Rockwell Automation executive and ask questions, I asked about the impact of acquiring Maverick Technologies on Rockwell’s relationships with independent integrators. Blake Moret said that it was no problem, because some customers wanted the automation purchase and the integration done by the same supplier.
Well, I wonder how integration partners are feeling today with news that Rockwell Automation has acquired MESTECH Services, a global provider of Manufacturing Execution Systems / Manufacturing Operations Management, digital solutions consulting, and systems integration services. At the same time, it is interesting to watch Rockwell’s strategic direction unfold. This acquisition along with the PTC partnership moves Rockwell a little bit along the software and services road. Will we see more?
MESTECH is a Rockwell Automation Recognized Systems Integrator with extensive experience applying Rockwell’s software-based solutions within the manufacturing technology space. The company offers technology consulting services, solutions design and deployment, support, plant asset management, and staffing solutions for discrete, hybrid, and process applications across multiple industries including Life Sciences and Automotive. MESTECH, founded in 2008, is headquartered in Pune, India with operations in Germany and the United States.
“The acquisition of MESTECH expands our capabilities to profitably grow Information Solutions and Connected Services globally and accelerate Rockwell’s ability to help our customers execute digital transformation initiatives,” said Matthew Fordenwalt, Vice President and General Manager, Systems & Solutions Business, for Rockwell Automation. “India is one of Rockwell’s fastest growing markets and MESTECH’s footprint and expertise will enable us to implement solutions faster, helping our customers increase their connectivity, efficiency, and productivity. At the same time, by joining the Rockwell family, MESTECH will be able to leverage Rockwell’s products and solutions in the areas of control, process, power information solutions and industrial IoT, including FactoryTalk Innovation Suite, powered by PTC, in order to help customers develop the best possible solutions while minimizing risk.”
“We are excited about our future with Rockwell Automation, which will enable us to help more customers simplify their industrial transformations and accelerate their production timelines,” said Yatin Sankholkar, Managing Director, at MESTECH. “Over the past decade, we have grown MESTECH into one of the world’s leading manufacturing execution service providers, with a focus on Technology Consulting and Software Implementation for managing manufacturing operations. By joining forces with Rockwell, we will be able to expand our market access and offer more customers the benefit of our strong industry expertise.”
The transaction is not expected to have a material impact on Rockwell’s 2020 financial results.